New home construction is on the rise in North Texas. When an owner or builder seeks to construct a new home within a town or city in Texas, they are required to first obtain certain permits from the municipality before construction can begin. If the home is to be constructed in an unincorporated area of a county, then any required permits will be obtained from the county instead of a municipality.

In Texas, there are areas beyond a city’s limits which may be regulated by a municipality. These areas are called “extraterritorial jurisdiction” or “ETJ”. The size of the ETJ depends on the type of municipality. The types of municipal governments are divided into two basic categories, general-law municipalities and home-rule municipalities. A Municipality with a population of more than 5,000 may choose to become a home-rule municipality.

The general rule is that a municipality cannot enforce its building codes and permitting requirements within its ETJ. However, a home-rule municipality may enforce its building codes and permitting rules within its ETJ if an ordinance authorizes it to do so. General-law municipalities on the other hand are limited to those powers that have been conferred by the Texas Constitution or state law and may not adopt ordinances which extend beyond such authorizations.

Recently, some general law municipalities have taken the stance that certain state laws and cases have provided the requisite authority of a general-law municipality to enforce their building codes and permitting rules within their ETJ. One of the significant reasons these small towns want to enforce their building codes and permitting rules within their ETJ is to obtain large permitting fees for the administration of the permitting process. The administration of the permitting process includes conducting periodic inspections and approvals at certain stages of the construction. The process typically ends in a final inspection and approval which allows the home to be occupied. However, it is not unusual for these smaller municipalities to not have the necessary manpower to properly administer the permitting process.

Lakewood Village, Texas, is one general-law municipality that has attempted to enforce its building codes and permitting rules within its ETJ. Lakewood Village is inhabited by approximately 620 people. The town is located southeast of Denton on the shores of Lake Lewisville. Lakewood Village can be accessed from FM 720 and El Dorado Parkway by way of East US 380 or by the Lewisville Lake toll bridge accessed from Swisher Road via I-35E.

Enter Harry Bizios.[1] Mr. Bizios wanted to construct a $1.2 million home in Lakewood Village’s ETJ. He obtained all of the necessary permits from Denton County to construct his home. Before Mr. Bizios could construct the home, Lakewood Village applied for and obtained a temporary injunction stopping Mr. Bizios’ construction. The Town contended that Mr. Bizios had violated Lakewood Village ordinance 11-16 which authorized Lakewood Village to enforce its building codes and permitting rules within its ETJ. According to Town’s secretary who testified in the injunction proceeding, Lakewood Village sought to charge Mr. Bizios almost $15,000.00 for the issuance of a building permit. Mr. Bizios appealed the issuance of the temporary injunction to the 2nd Court of Appeals (Fort Worth), and the court issued its opinion resolving the issue on New Year’s Eve of 2014. The full decision can be found at 2014 Tex. App. LEXIS 13939.

Essentially, the Fort Worth court decided in favor of Mr. Bizios. The court found that the Town’s ordinance went beyond the authority afforded to general-law municipalities by the legislature. In agreeing with Mr. Bizios, the court stated, “Because none of the statutes referenced by the Town expressly grant a general-law municipality the authority to extend its building code in its ETJ, and because we have otherwise found none that does so, the trial court abused its discretion by granting the injunction.” The court then reversed the trial court’s order and remanded the case back to the trial court for further proceedings. Lakewood Village has filed a petition requesting that the Texas Supreme Court review the Court of Appeals’ decision.

While the issue is not yet finally settled, the Fort Worth Court of Appeals has upheld the prohibition of a general-law municipality to regulate building codes and permitting rules within its ETJ. Once the Texas Supreme Court decides if it will review the decision, and if it does issue a final determination of this issue, we will let you know what happens. Until then, the general rules referenced herein will continue to apply where building within the ETJ of a general-law municipality.

Scott Alagood is Board Certified by the Texas Board of Legal Specialization in both Commercial and Residential Real Estate Law and may be reached at alagood@dentonlaw.com and www.dentonlaw.com.

[1] For the record, neither the author nor his law firm represented any party to the legal proceeding nor played a part in the legal proceeding referenced in the article

To establish a claim by adverse possession, a claimant must enter the land with a claim of right inconsistent and hostile with that of another person. Tex. Civ. Prac. & Rem. Code Section 16.021(1). A “claim of right” is defined as the claimant’s intention to appropriate or claim the land as his or her own. Such claim of right may be established by a public declaration of the claim or by visible and apparent acts. The verbal assertion of a claim is not necessary.

The claimant need not understand or maintain that the claim of right he or she is relying upon is actually adverse to that of the record title holder. However, a mistake as to whom actually holds record title is not sufficient to establish adverse possession where the land is shared.

If the appropriation and possession of the land was done through permission or with the consent of the record title holder, then such will not suffice to establish adverse possession.

Adverse possession cannot be established where the claimant recognizes that another person holds title to the land or has offered to purchase the land from the title holder in such a way that would show that the claimant admitted that the title holder is the real owner.

In certain instances (as will be discussed in Part III), visible appropriation may be taken as evidence of a claim of right when the claim of right is not otherwise expressed.

As you can see the law of adverse possession is founded on notice. Existing rights in land should not be lost without giving the owner an opportunity to take preventative action by taking prompt action to dispute the claim.

With a hopefully improving economy, our State and local community should see an increase in new housing development. If our past history is a good indicator of the future, then the increase in new construction will necessarily increase the number of construction defect claims between the Buyers of these new homes and the Contractors who constructed them. This article will briefly discuss the history of residential construction claims in Texas and set forth the current legal framework for home owners and builders who may soon find themselves on one side or the other of a residential construction defect claim.

History

Prior to 1999, residential construction disputes in Texas were primarily dealt with through general contract principles and consumer protection statutes. As a result of a real or perceived increase in the number of claims brought by owners against builders and the large damage claims potentially available under certain State consumer protection statutes, the Texas legislature enacted the Texas Residential Construction Liability Act in Chapter 27 of the Texas Property Code (“RCLA”). RCLA framed construction defect claims into specific procedural and damage limitation considerations. However, it seemingly did little to reduce the number of suits and arbitrations or to reduce the large damage claims sought by home owners against builders. In response to a very powerful Texas builders’ lobby (with input from a somewhat less influential consumers’ lobby), the Texas legislature enacted the Texas Residential Construction Commission Act (“TRCCA”) in 2003. The general purpose of TRCCA was to 1) provide a builder registration program, 2) provide a mandatory administrative state-sponsored inspection and dispute resolution process for construction defects, and 3) set forth minimum building standards and warranties for residential construction. Without getting into the details of TRCCA, it should be noted that an owner’s failure to follow the mandatory state-sponsored inspection and dispute resolution process could result in the owner losing the ability to prosecute a claim in court or through arbitration.

The mandatory and harsh effects of TRCCA when combined with the economic downturn effectively resulted in litigated and arbitrated construction defect claims virtually ceasing to exist between 2003 and 2009 in Texas. However, TRCCA was subject to the sunset laws governing administrative agencies, and as part of the sunset process TRCCA was repealed in 2009. Now that TRCCA has been repealed, owners and builders face going “back to the future” when dealing with construction defect claims under traditional contract principles, consumer protection statutes, and the Residential Construction Liability Act.

Implied Warranties

When TRCCA was dissolved in 2009, one of the consequences was the removal of the minimum building standards and warranties for residential construction. With TRCCA out of the way, the common law of Texas which existed at the time of TRCCA reappeared. Through several former Texas Supreme Court decisions, two common law implied warranties once again set the standard for residential construction defects in Texas.

The first implied warranty is the” warranty of good and workmanlike manner”. This warranty requires a Contractor to construct a residence in the same manner as would a generally proficient Contractor engaged in similar work and performing under similar circumstances. Any express warranty must equal or exceed the performance required by the implied warranty of good and workmanlike manner, and it cannot completely disclaim the implied warranty by providing performance standards which do not meet or exceed those required by the residential construction industry.

The second implied warranty is the warranty that the home is suitable for human habitation and only extends to defects that render the home unsuitable for its intended use as a home. This warranty is only applicable to latent defects, that is, those defects that are not disclosed or clearly known to the Buyer of the home. This warranty may not be generally disclaimed. If fully disclosed by a builder to a Buyer, those defects which are knowingly and voluntarily accepted will not be subject to the implied warranty of habitability.

Deceptive Trade Practices: the Home Owner’s Sword

The Deceptive Trade Practices – Consumer Protection Act (Section 17.41 et. seq. of the Texas Business and Commerce Code, herein “DTPA”) applies to the sale of homes. The DTPA expressly allows a consumer to maintain an action where the breach of an express or implied warranty produces economic damages or damages for mental anguish. Where a builder has not built the home in “a good and workmanlike manner” or to be “habitable”, such builder has breached either or both of the two warranties implied by law on a new residence, thus making such “breach” actionable under the DTPA.

The benefits that the DTPA provides over general contract principles are primarily two-fold. First, the claimant only has to show that its damages were “produced”, rather than “proximately caused”, by the builder’s breach of the implied warranty. This means that the claimant need not prove that any resulting damages were reasonably foreseeable. Any damages, no matter how remote, may be proven by the claimant, so long as they result from the builder’s breach of the implied warranty. Secondly where the claimant can prove that the builder intentionally or knowingly “breached” the implied warranty, the claimant may also be awarded mental anguish damages and up to three times the claimant’s actual or economic damages.

Residential Construction Liability Act: the Builder’s Shield

Since the expiration of TRCCA, RCLA continues to provide builders with a statutory filter through which construction defect claims must navigate. While RCLA does not in and of itself provide the home owner with a separate cause of action against a builder, failure to comply with the Act has consequences for both the home owner and the builder.

First, RCLA makes it clear that to the extent of any conflict between RCLA and the DTPA, the provisions of RCLA will control. Second, RCLA limits the liability of a Contractor for defects caused by several statutory acts which are deemed to be outside of the Contractor’s control. Third, RCLA requires that the home owner give the Contractor at least sixty (60) days prior written notice by certified mail of the specific construction defects that are the subject of the complaint prior to filing suit or invoking arbitration proceedings. Fourth, RCLA allows the Contractor during the first thirty-five (35) days following receipt of the home owner’s RCLA notice to inspect the home and construction defects by supplying the home owner with a written request for inspection.

Second, RCLA allows the Contractor to provide a written offer of settlement to the home owner by certified mail that may include an agreement by the Contractor to repair or have repaired any of the applicable construction defects and may describe the kind of repairs to be made. Additionally, under certain specific circumstances, the Contractor may also make an offer to repurchase the home. Any offered repairs must be made not later than forty-five (45) days after the Contractor’s receipt of the home owner’s written acceptance of the Contractor’s offer, unless delayed by the home owner or by other events beyond the Contractor’s control.

Third, if the home owner believes that the Contractor’s initial offer of settlement is not reasonable, then the home owner must advise the Contractor in writing of such fact and provide details why within twenty-five (25) days of receipt of the Contractor’s initial offer. In such instance, the Contractor has an additional ten (10) days from receipt of such notice from the home owner to make a supplemental written offer of settlement to the home owner.

Fourth, if the home owner rejects a reasonable offer from the Contractor or fails to permit the Contractor to perform under such offer after acceptance, the home owner’s damages are limited to the greater of the value of the Contractor’s repair offer, or monetary settlement offer; and the home owner’s reasonable and necessary attorney’s fees incurred before the offer was rejected. Where a Contractor fails to make a timely reasonable offer, the immediately preceding damage limitations do not apply. Regardless, the current version of RCLA seems to prohibit a home owner from recovering any damages other than the following reasonable and necessary damages which are proximately caused (must be “foreseeable”) by a construction defect: cost of repairs; cost for the replacement or repair of goods damaged in the residence; engineering and consulting fees; expenses for temporary housing; reduction in fair market value related to any structural failure; and attorney’s fees. Note that the heightened causation standard of “proximate cause” is reintroduced, and the limitations on damages supplied by RCLA appear to completely remove the statutory mental anguish and multiplication of damages which would otherwise be allowed by the DTPA.

Finally, under RCLA, either the home owner or the Contractor may force the construction defect disputes to be mediated.

Conclusion

As you can see, construction defect claims can be extremely complicated for both the home owner and the builder. Failure to follow the statutory requirements of RCLA may have serious consequences for either or both parties. Therefore, if you find yourself in such a situation, it is always advisable to seek the advice of a competent attorney who regularly deals with construction defect cases.